The National Mortgage Settlement: What Every Consumer Bankruptcy Lawyer Needs To Know About It

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1 The National Mortgage Settlement: What Every Consumer Bankruptcy Lawyer Needs To Know About It Presented by: John Rao, Esq., National Consumer Law Center, NACBA Vice President, and Professor Katherine Porter, Univ. of California Irvine School of Law; California Monitor Thursday, September 27, 2012

2 National Mortgage Settlement Parties to the Deal Government: US DOJ (including US Trustee Program), HUD, US Treasury, Attorneys General (except OK) 5 Servicers: Bank of America Wells Fargo JPMorgan Chase Citibank GMAC (aka Ally). Timing of Settlement Relief March 1: Loan modifications can receive credit October 3: All servicing standards must be implemented

3 Servicing Standards for Bankruptcy National Mortgage Settlement

4 Accuracy of Filed Documents All pleadings, proofs of claim, affidavits, sworn statements, and declarations filed in judicial foreclosure or bankruptcy cases, and in notices of default or sale in non judicial foreclosures, must be: accurate and complete and are supported by competent and reliable evidence Does this impose a stricter standard than Bankruptcy Rule 9011?

5 Accuracy of Filed Documents If proof of claim or stay relief motion in case pending before Settlement contains materially inaccurate information, servicer must: file an amended claim or motion, at servicer s expense, within 30 days of acquiring knowledge of the inaccuracy not collect any attorney fees or other charges for preparation or submission of proof of claim or motion for relief that is later withdrawn or denied as a result of a substantial misstatement as to the amount due

6 Affidavits, Sworn Statements, and Declarations Must: Be based on personal knowledge or reliance on business records as allowed under FRE Not contain false or unsubstantiated information, but statements based on information and belief are allowed if so stated Accurately identify affiant/declarant by name, employer, and title Be signed BY HAND and dated (signature stamps and other mechanical signatures prohibited except for electronic filing)

7 Proofs of Claim Servicers required to attach to proof of claim the Loan Documents, which include: original or duplicate of note, including all indorsements; a copy of any mortgage or deed of trust (including, if applicable, evidence of recordation in applicable land records); and copies of any assignments of mortgage or deed of trust required to demonstrate the right to enforce the borrower s note under applicable state law

8 Proofs of Claim Servicers must also attach to proof of claim: affidavit if note has been lost or destroyed statement setting forth basis for asserting that applicable party has right to foreclose must have procedures to ensure servicer or foreclosing entity has documented enforceable interest in note and mortgage under state law, or is otherwise a proper party to the foreclosure action Official Form 10 (Attachment A) as required by Bankruptcy Rule 3001(c)(2)(C) must comply with all other requirements in Rule 3001

9 Bankruptcy Mortgage Rules Settlement imposes sanction separate from that available under Bankruptcy Rule (i) if servicer fails to provide payment change notice as required by Rule (b), servicer shall waive and not collect any late charge or other fees imposed solely as a result of the borrower s failure to timely make the changed payment If servicer fails to timely provide notice of fees, as required by (c) and Rule (g), the fees are deemed waived and may not be collected from the borrower exception for independent charges fees paid by servicer that are authorized by borrower or advanced by servicer for taxes, HOA fees, liens or insurance

10 Stay Relief Motions In Chapter 13 cases, the motion papers must: Include Loan Documents or state that they are attached to a filed proof of claim State the basis for the moving party s right to foreclose Disclose whether debtor is being evaluated for a loss mitigation option Disclose terms of any trial period or permanent loan modification plan pending at time of motion

11 Stay Relief Motions In Chapter 13 cases, the motion shall have attached an affidavit, sworn statement or declaration setting forth: whether there are any prepetition or post petition defaults if default, a description of any default, and a detailed itemization of all amounts owed, the prepetition and post petition arrearages, and each fee or charge applied to such pre petition amount or post petition amount; and an up to date statement of all amounts claimed and the amount necessary to cure any default

12 Payment Application in Ch. 13 Cases Servicers must ensure prompt and proper application of payments made on prepetition arrearage and post petition payment amounts Debtor is to be treated as being current so long as making payments in accordance with confirmed plan and any later effective payment change notices Throughout the case, servicer is required to update its records to reflect payments made during case and waiver of any fee as required under Settlement

13 Loan Modifications for Bankruptcy Debtors National Mortgage Settlement

14 Principal Reduction Eligibility Criteria In default or imminent risk of default at time of Settlement Underwater Ownership of loan No Fannie/Freddie or FHA/VA Wells Fargo, Citi, & GMAC servicer owned loan Bank of America & Chase servicer owned loans investor owned loans with delegated authority

15 First Lien Principal Reductions Bank of America Mandatory solicitation of certain group of borrowers (60 days default as of 1/31/12, and other criteria) Borrowers in bankruptcy will be solicited through their counsel if they are represented Watch for these solicitations and notify your clients Wells Fargo, Chase, Citi, and Ally/GMAC Not subject to same solicitation requirements as Bank of America Policies on soliciting borrowers in bankruptcy not yet disclosed.

16 Second Lien Principal Reductions Bank of America Sending solicitations to eligible borrowers Complete forgiveness of loan Opt out offers that forgive liens of non responders Borrowers in bankruptcy are being solicited, including: Debtors with confirmed plans to strip off second liens Debtors with entered discharge orders Wells Fargo, Chase, Citi, and Ally/GMAC Second lien modification programs vary but primarily occur when a first lien is modified under Settlement by them or another settlement bank

17 Refinance Program Mandatory solicitation refinance program for servicerowned first liens of CURRENT underwater borrowers. Refinance is really streamlined modification to reduce interest rate. Borrowers who are currently in bankruptcy or who have been in bankruptcy during the last 24 months are NOT eligible for this program and cannot apply.

18 Enforcement National Mortgage Settlement

19 Enforceable by Private Parties? Not directly enforceable by borrowers/debtors Failure to comply with the standards may provide additional support for request by debtors for: sanctions in addition to those available under Bankruptcy Rules 3001(c)(2)(D) and Rule (i) denial of stay relief for failure to show cause under section 363(d)(1) disallowance of claim under section 502(b)(1)

20 Enforceable by Private Parties? Violations support claims that non complying servicers are violating a clear industry standard, giving rise to claims based on: state UDAP laws duty of good faith and fair dealing See Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012); In re Hinson, 2012 WL (Bankr. E.D.N.C. Apr 17, 2012) Courts may apply equitable principles to deny relief requested by servicers that relates to violations of standards

21 Enforcement: Metrics Metrics measure compliance with servicing standards Translate servicing standards into defined activities that will be measured or tested Each metric has an acceptable error rate (often 5%) to determine if penalty can be imposed Penalties of $1 million for first violation Banks Internal Review Group does initial work on servicing; audited by professional firm hired by National Monitor

22 Enforcement: Credits Credits measure dollars toward $17 billion Settlement relief Different amounts of credit for different activities Principal reductions Refinances Short sales Anti blight measures And many more Different credit amounts for different activities Example 1: first lien principal reduction of servicer owned loan is $1 = $1 credit but if investor owned $1 = $0.40. Example 2: $0.10 on the dollar credit for forgiving second liens that are over 180 days delinquent

23 Where to Report Problems Nationwide: NACBA of course! The US Trustee program A party to Settlement On the Monitoring Committee Joseph Smith, the National Monitor

24 Where to Report Problems

25 Where to Report Problems In California: the California Monitor Program: We work individual cases to help people Other states with interesting or progressive help systems for Settlement include: Illinois AG in house loan modification unit Massachusetts Special Counsel for Settlement Arizona co branding pilot